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Why Drop Shipping is the Ideal Business Model

by Nov 13, 2020Drop Shipping, Online Business Mastery

Why Drop Shipping is the Ideal Business Model

No business model is quite perfect. Business is ultimately about delivering value to people. And creating value takes work. Work is inherently a problem-solving activity. Problems are imperfections. So, drop shipping is not without its faults. The best model is always going to depend on your goals and the goals of your company, of your industry, current technology, and market.

But while this is true, there are certainly some business models out there that come pretty close to being perfect. And probably the best example of this is drop shipping. Why is drop shipping so special? Let's find out.

The Problem with Affiliate Marketing

Affiliate marketing is the route that most internet marketers will take when trying to make money from a blog or a social media channel/mailing list. The idea is simple: they promote someone else's product and then they get a profit. There is nothing wrong with starting here. It is a great place to start and you may even consider staying with it entirely. If you have limited resources, limited time, or limited experience, it can work to your advantage to start with affiliate marketing.

The problem is that these products are almost always digital products. To get the biggest money, that's what you need to sell. Digital products often have little cost to produce and once they are produced, can be reproduced or distributed without any cost or scaling issues.

While this has big advantages for the manufacturer, it has some significant downsides for you. For starters, the appeal of a digital product is much smaller than that of a physical product. Try and sell a digital product to your Grandma for instance and you won't likely have much luck. The same goes for trying to sell digital products to your Mum. Probably your Dad. Probably even your friends! In part this has to do with the focus of digital products. Digital products are usually information products and their appeal comes from their ability to solve a specific problem. Your audience must need to solve that problem. Typically, these problems are for much smaller audiences, whereas products can appeal more broadly.

The other big issue with digital products is that you're sending customers away from your site. They'll be more likely to remember the company that sold them the product versus the blog that sent them there! And this prevents them from buying multiple items through you. This ultimately increases your costs to get traffic and conversions. The real value of your business comes not from the initial sale but from being able to sell your products and services over the lifetime of your customer. This is much harder to achieve with affiliate marketing unless you actively sculpt your niche to offset this challenge.

The Problem with Selling Your Own Product or Reselling

So, you could sell your own product, sure. But then you must manufacture it, spending thousands of dollars and potentially wasting your money if the product isn't a hit. Many of us don't have the money or the knowhow to go this route. This is business at ground zero. You will be building everything from scratch, products prototypes, branding, packaging, manufacturing, and distribution channels. 

So, you can resell instead… only this way you still need to take a big risk by spending lots of money on inventory. Then you have to find a way to store all that product and then you have to deliver it and worry about whether it arrives on time or not. It's a huge amount of admin and not much fun…. This is retail. This is Walmart, this is Dick's Sporting Goods, this is Target. If you are going to do retail, you need to identify a profitable niche where you can realistically compete.

Enter Drop Shipping

But with drop shipping, what you're doing is selling a product through your own store as though it were your own item and then letting the wholesaler worry about fulfillment and delivery – as though it were an affiliate product.

This has all the benefits of selling an affiliate product because you can market for products and services, but not have to carry them. But it also has all the benefits of selling a real product as a reseller or manufacturer – you get to keep your customers, improve your brand awareness, and actually build your business; while also selling real, useful products.

Best of all, some companies will even offer ‘white label' drop shipping services. This means you can actually print your logo on the product or include an insert in the mailing box with your business info and claim it as your own!

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